Some experts predict this will be the year for value stocks to shine, as economic growth slows.
If so, that should be music to the ears of AutoZone (NYSE: AZO), the biggest U.S. auto parts retailer by number of stores – over 7,700. It has solid, but not, spectacular growth, with revenue rising 8.2% in the fiscal 2026 first quarter, ended Nov. 22, from a year earlier. Its price-to-sales ratio is 3.1, compared to 3.4 for the S&P 500 index.
AutoZone’s ad slogan is “Get into the zone: AutoZone!” What has the company in its own zone above all is stellar customer service and a superior distribution network.
With about 85% of AutoZone’s sales involving failure- and maintenance-related parts, according to Morningstar, time is of the essence. These are products such as alternators, batteries, and spark plugs. Obviously many of us need to drive daily to live our lives, so the parts are essential.
The company has more than 7,700 stores in the U.S., Mexico and Brazil. It has a hub and spoke supply chain, with 300 of its 6,600 U.S. stores constituting hub and mega hub stores. These are much larger than the rest – satellite stores.
Competitive advantage
The system gives AutoZone a competitive advantage, analysts say. Its biggest competitor is O’Reilly Automotive (NASDAQ: ORLY), which has a market capitalization of $80 billion, compared to $58 billion for AutoZone.
Consumers value convenience and service, even over lower prices, writes Morningstar analyst Kristoffer Inton. And AutoZone’s customer service measures up. “The retailer’s staff often assists customers with the diagnosis of a vehicle, ordering the necessary part for a specific make and model, and even replacing and testing the functionality of parts,” he said.
The company opened 53 stores globally in the last quarter, and it plans to “aggressively” open more of all sizes, CEO Phil Daniele said in AutoZone’s earnings conference call Dec. 9. It hopes to build 500 new stores by fiscal 2028.
AutoZone particularly has room to expand overseas, given its low number of stores there compared to the U.S. “Our business is getting more global each day,” Daniele said.
Another opportunity for AutoZone is to grow its business to commercial customers. In fiscal 2025, 68% of its sales came from do-it-yourself customers (individuals), and 32% came from do-it-for-me customers (businesses). Domestic sales to commercial customers jumped 14.5% in the latest quarter, and the potential is there for further gains.
Fragmented commercial market
The commercial after-market for auto parts remains fragmented, with AutoZone holding just a mid-single-digit share, Inton said. “The firm has an opportunity to take market share from independent operators and gradually consolidate the industry.”
Meanwhile, AutoZone is benefiting from the aging of cars out on U.S. roads. The average age of U.S. cars is 12.8 years, up 8% from 11.9 in 2020. That means more of a need for parts. Given the explosion of new car prices, this trend is unlikely to change soon. The average new car price surpassed $50,000 in September, soaring more than two-thirds in the last 15 years.
As for AutoZone’s stock, it has generated total returns of 8.4% for one year, 22.4% for five years and 17.1% for 10 years. That lags the S&P 500 for one year, but beats it for five and 10.
Looking forward, AutoZone may be headed for further success. “Its consistent comparable-store sales growth and gross margins north of 50% suggest that its focus on customer service and the convenience provided by its brick-and-mortar stores are a winning formula,” Inton said. He sees strong returns on invested capital for the “foreseeable future.”
It may be time to get in the zone.
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